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Item 1.01
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Entry into a Material Definitive Agreement.
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On March 31,
2021, Greenlane Holdings, Inc. (the “Company” or “Greenlane”), Merger Sub Gotham 1, LLC, a wholly owned
subsidiary of the Company (“Merger Sub 1”), and Merger Sub Gotham 2, LLC, a wholly owned subsidiary of the Company
(“Merger Sub 2” and, together with the Company and Merger Sub I, the “Greenlane Parties”), entered into
an Agreement and Plan of Merger (the “Merger Agreement”) with KushCo Holdings, Inc. (“KushCo”). The Merger
Agreement, the Mergers (as defined below) and the other transactions contemplated by the Merger Agreement were unanimously approved
by a special committee of the Company’s Board of Directors consisting entirely of the Company’s independent and disinterested
directors (the “Special Committee”) and the Company’s Board of Directors.
Merger
Agreement
Pursuant to
the terms of the Merger Agreement, subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement:
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Merger Sub 1 will be merged with and into KushCo with KushCo as the surviving corporation and a wholly-owned subsidiary of
the Company (“Initial Surviving Corporation”) (“Merger 1”); and
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the Initial Surviving Corporation will then be merged with and into Merger Sub 2 with Merger Sub 2
as the surviving limited liability company and a wholly-owned subsidiary of the Company (“Merger 2,” and together with
Merger 1, the “Mergers”).
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Under the terms of the Merger Agreement,
KushCo’s stockholders will receive approximately 0.2546 shares of the Company’s Class A common stock, par value $0.01 per share (the “Class A common stock”) for each share
of KushCo common stock (the “Base Exchange Ratio”), subject to adjustment as described in the Merger Agreement (the
Base Exchange Ratio, as adjusted, the “Exchange Ratio”). The Base Exchange Ratio is expected to result in KushCo stockholders
owning approximately 49.9% of the Class A common stock and existing stockholders of the Company owning approximately 50.1%
of the Class A common stock.
The Merger Agreement permits the Company
to continue to pursue opportunistic and strategic priorities prior to the closing of the Mergers, including engaging in certain
contemplated acquisitions and capital raising transactions. If the Company issues additional securities prior to the closing of
the Merger in connection with any acquisitions or capital raising transactions, then the Base Exchange Ratio will be adjusted such
that the Company’s existing stockholders maintain an aggregate interest of at least 50.1%, and not more than 51.9%, in the
Company following the completion of the Mergers.
At or immediately prior to the effective time of Merger 1, subject
to the approval of the Company’s, stockholders, the Company’s Amended and Restated Certificate of Incorporation will
be amended and restated (the “Charter Amendment”) in order to (i) effect a conversion of each outstanding share of
Class C common stock for three shares of Class B common stock (the “Class C Conversion”), increase the number of
authorized shares of Class B common stock from 10,000,000 shares to 30,000,000 shares and (ii) increase the number of authorized
shares of Class A common stock from 125,000,000 million shares to 600,000,000 shares.
Following the completion of the Mergers, the
size of the Company’s Board of Directors will be increased to seven members consisting four existing directors of the Company,
including Aaron LoCascio and Adam Schoenfeld, and three current KushCo directors, including Nicholas Kovacevich, KushCo’s
Chairman and Chief Executive Officer. Mr. Kovacevich will serve as the Company’s Chief Executive Officer following the
completion of the Mergers, Mr. LoCascio will serve as the Company’s President and Mr. Schoenfeld will continue to serve as the
Company’s Chief Strategy Officer. In addition, William Mote will continue to serve as the Company’s Chief Financial
Officer.
The Mergers are subject to customary closing conditions including,
among other things, (1) the approval of the Merger Agreement by holders of a majority of the outstanding shares of KushCo’s
common stock (the “Requisite KushCo Approval”), (2) the repayment of certain KushCo indebtedness and release of related
liens, (3) approval of the Merger Agreement by holders of a majority of the voting power of the outstanding shares of the Company’s
common stock held by stockholders other than (i) Jacoby & Co. Inc. (“Jacoby”), an entity controlled by the
Company’s co-founders, and its affiliates and (ii) the chief executive officer, chief financial officer, chief operating
officer, and general counsel of the Company, (4) the approval of the Charter Amendment by holders of a majority of the voting power
of the outstanding shares of the Company’s common stock, (5) the approval of the issuance of shares of the Class A common stock in connection with Merger 1 by the affirmative vote of a majority of the votes cast by stockholders of the
Company entitled to vote on the matter (the items numbered (3) through (5) are referred to herein as the “Requisite Greenlane
Approvals”), (6) the approval for the Nasdaq listing of the shares of the Class A common stock to be
issued in Merger 1, (7) the accuracy of the representations and warranties
made by the parties (subject to customary materiality qualifications), (8) the effectiveness of a Registration Statement on Form
S-4 registering the issuance of the shares of Class A common stock to be issued by the Company in Merger 1, (9) the performance
by the parties in all material respects of their covenants, obligations and agreements under the Merger Agreement, (10) the
expiration or termination of the required waiting period (and any extensions thereof) under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, (11) the delivery of tax opinions that the Company Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended and (12) no occurrence of a material
adverse effect (which exclude COVID-19 related effects) on the Company or KushCo.
Treatment of Equity Awards
Immediately prior to the effective time of Merger 1, each KushCo
stock option (whether or not vested or exercisable) will be converted into an option to purchase, on the same terms and conditions
that apply to such option, that number of shares of the Class A common stock multiplied by the Exchange Ratio at
an exercise price determined by dividing the per share exercise price covered by the Company option immediately prior to Merger
1 by the Exchange Ratio.
Immediately prior to Merger 1, each KushCo restricted stock
unit will vest in full and be settled and treated as a share of the KushCo’s common stock in Merger 1.
Immediately prior to Merger 1, all unvested Greenlane equity
awards other than those held by non-employee directors will become fully vested.
No Shop
Effective as of the signing
of the Merger Agreement, the Company and KushCo are prohibited from soliciting, initiating, seeking, encouraging, facilitating
(including by furnishing non-public information), continuing, or engaging in discussions or negotiations regarding, a proposal or
inquiry that constitutes or could reasonably be expected to lead to a proposal to acquire 20% or more of their respective assets
or capital stock (an “Acquisition Proposal”). However, if prior to obtaining the Requisite Greenlane Approvals or the
Requisite KushCo Approval, as applicable, Greenlane or KushCo receives a bona fide, unsolicited, written Acquisition Proposal
that Greenlane’s Board of Directors or KushCo’s Board of Directors determines to be, or could reasonably be expected
to lead to, a “superior proposal,” and Greenlane Board of Directors (or the Special Committee) or KushCo Board
of Directors, as applicable, reasonably determines that failure to take the following actions would be inconsistent with its fiduciary
duties, then the party that received the Acquisition Proposal may provide to the person who made the Acquisition Proposal non-public
information and engage in discussions and negotiations, under an acceptable confidentiality agreement. Within 48 hours, the party
that received the Acquisition Proposal is required to notify the other party to the Merger Agreement regarding any Acquisition
Proposal and provide the identity of the party submitting the proposal and a copy of the proposal or a summary of the material
terms of the proposal, and must keep the other party to the Merger Agreement reasonably apprised of material developments.
If, prior to obtaining the Requisite Greenlane
Approvals or the Requisite KushCo Approval, as applicable, a superior proposal is received or certain intervening events occur,
Greenlane’s Board of Directors (or the Special Committee) or KushCo’s Board of Directors, as applicable, may change
its recommendation with respect to the Merger Agreement if it reasonably determines that failure to do so would be inconsistent
with its fiduciary duties.
Termination
The Merger Agreement may be terminated under certain circumstances,
including by mutual consent or by the Company or KushCo, as applicable, if (1) if the Mergers have not been completed on or
before December 31, 2021, subject to one thirty-day (30) extension, (2) if there is in effect an order of a governmental entity
restraining or enjoining the Mergers (whether temporary, preliminary or permanent) (3) upon failure of either party to obtain
the requisite stockholder approval, (4) upon a material breach by the other party that would result in the failure of a closing
condition to be capable of being satisfied before the earlier of 30 days after written notice of the breach and December 31, 2020
or (5) if a material adverse effect (which exclude COVID-19 related effects) occurs with respect to the other party. Additionally,
each of the Company and KushCo may terminate the Merger Agreement in order to enter into an alternative transaction that is considered
a superior proposal, following a prescribed process described above under “No Shop” above. In connection with the termination
of the Merger Agreement for such reason and under other specified circumstances set forth in the Merger Agreement, the terminating
party will be required to pay a termination fee equal to four percent of its equity value as of the date of the signing of the
Merger Agreement.
The foregoing description
of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the full text of the Merger Agreement, which is filed as Exhibit 2.1 hereto and is incorporated
herein by reference.
Other
Matters
The Merger Agreement
has been included to provide investors and stockholders with information regarding its terms. It is not intended to provide any
other factual information about the parties. The Merger Agreement contains representations and warranties that the parties to the
Merger Agreement made to and solely for the benefit of each other and may apply contractual standards of materiality that are different
from materiality under applicable securities laws. The assertions embodied in such representations and warranties are qualified
by information contained in the confidential disclosure schedules that KushCo delivered to Greenlane and that Greenlane delivered
to KushCo in connection with signing the Merger Agreement. Accordingly, investors and stockholders should not rely on such representations
and warranties as characterizations of the actual state of facts or circumstances, since they were only made as of the date of
the Merger Agreement, are modified in important part by the underlying disclosure schedules, and qualified as a way of allocating
the risk to one of the parties if those statements prove to be inaccurate. Moreover, information concerning the subject matter
of such representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may
not be fully reflected in public disclosures made by the parties.
Voting Agreements
On March 31, 2021,
in connection with the execution of the Merger Agreement, Jacoby, a stockholder of the Company that is controlled by Messrs. LoCascio
and Schoenfeld, entered into a voting agreement (the “Greenlane Voting Agreement”) with the Company and KushCo.
Pursuant to the
Greenlane Voting Agreement, Jacoby has agreed, among other things, to vote or cause to be voted any issued and outstanding shares
of the Company’s common stock beneficially owned by Jacoby, or that may otherwise become beneficially owned by Jacoby, during
the term of the Greenlane Voting Agreement, (i) in favor of all proposals presented at the special meeting of stockholders to be
held by the Company in connection with the Mergers and related transactions other than the proposal to adopt the Merger Agreement
and the transactions contemplated by the Merger Agreement, which it is prohibited from voting upon, (ii) against any action or
agreement that would result in a breach of any covenant, representation or warranty or any other obligation of the Company contained
in the Merger Agreement or of Jacoby contained in the Greenlane Voting Agreement, and (iii) against any Acquisition Proposal or
any other action, agreement or transaction that is intended, or could reasonably be expected, to materially impede, interfere or
be inconsistent with, delay, postpone, discourage or materially and adversely affect the consummation of the transactions contemplated
by the Merger Agreement or the Greenlane Voting Agreement. As of March 31, 2021, Jacoby held approximately 62% of the issued and
outstanding shares of the Company. Jacoby is permitted to transfer its shares by sale in the open market through a broker dealer.
The Greenlane
Voting Agreement will automatically terminate upon the earliest of (i) mutual written agreement of Jacoby and the Company, (ii)
the consummation of the Mergers, (iii) any change in recommendation by the Company’s Board of Directors and (iv) a termination
of the Merger Agreement in accordance with its terms.
On March 31, 2021,
the Company and KushCo entered into voting agreements (the “KushCo Voting Agreements” and, together with the Greenlane
Voting Agreement, the “Voting Agreements”) with Mr. Kovacevich and Dallas Imbimbo, a member of KushCo’s Board
of Directors.
Pursuant to the
KushCo Voting Agreements, Messrs. Kovacevich and Imbimbo have agreed, among other things, to vote or cause to be voted any issued
and outstanding shares of KushCo’s common stock beneficially owned by them, or that may otherwise become beneficially
owned by them, during the term of the KushCo Voting Agreements, (i) in favor of all proposals presented at the special meeting
of stockholders to be held by KushCo in connection with the Mergers and related transactions, (ii) against any action or agreement
that would result in a breach of any covenant, representation or warranty or any other obligation of KushCo contained in the
Merger Agreement or of Mr. Kovacevich or Mr. Imbimbo contained in the KushCo Voting Agreements, and (iii) against any Acquisition
Proposal or any other action, agreement or transaction that is intended, or could reasonably be expected, to materially impede,
interfere or be inconsistent with, delay, postpone, discourage or materially and adversely affect the consummation of the transactions
contemplated by the Merger Agreement or the KushCo Voting Agreements. As of March 31, 2021, Messrs. Kovacevich and Imbimbo held
approximately 12% of the issued and outstanding shares of KushCo.
The KushCo Voting
Agreements will automatically terminate upon the earliest of (i) mutual written agreement of Mr. Kovacevich or Mr. Imbimbo, as
applicable and the Company, (ii) the consummation of the Mergers, (iii) any change in recommendation by KushCo’s Board
of Directors and (iv) a termination of the Merger Agreement in accordance with its terms.
The foregoing description
of the Voting Agreements and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the full text of the Voting Agreements, which are filed as Exhibits 10.1, 10.2 and 10.3 hereto,
respectively, and are incorporated herein by reference.
Increase
to Shares Available Under the Equity Plan
At the special meeting relating to the approval of the Merger
Agreement and the other matters described above, the Company will seek stockholder approval of an amendment to the Company’s
2019 Equity Incentive Plan in order to increase of the number shares of common stock available under the Plan to an amount equal
to 7.5% of the aggregate number of shares of Class A and Class B common stock to be outstanding after completion of the Mergers
and the Class C Conversion.